REAL ESTATE INVESTORS GLOSSARY

AZREIA understands that there are a lot of different legal terms, abbreviations, slang and more when it comes to real estate investing and that it isn’t easy to remember them all. That is why we have compiled* a list of over 400 terms in this glossary so you can look up and reference if you need. If there is a real estate investing term on the list you are looking for and do not see, you can submit it here and we will add it to our list: https://forms.gle/ui3ihRsA17ya7VvT6

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A

Abatement

Often referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease.

Above Building Standard

Upgraded finishes and specialized designs necessary to accommodate a tenant’s requirements.

ABR Accredited Buyer Representative (ABR)

A designation for real estate agents who have received special training and practical experience required by the Real Estate Buyers Agent Council, or REBAC. An ABR normally specializes in representing only buyers rather than working with sellers to list property.

Absentee Landlord

A landlord that owns and rents out a property to earn profit and does not live on the property or in the local economic region.

Absorption Rate

The rate at which rentable space is filled. Gross absorption is a measure of the total square feet leased over a specified period with no consideration given to space vacated in the same geographic area during the same time period. Net absorption is equal to the amount occupied at the end of a period minus the amount occupied at the beginning of a period and takes into consideration space vacated during the period.

Abstract of Judgement

The summary of a court judgment that creates a lien against a property when filed with the county recorder.

Abstract of Title

The summary that provides details of the title deeds and documents that prove the seller/owner’s right to dispose of the property.

Accelerated Cost Recovery System

A tax calculation that provides greater depreciation in the early years of ownership of real estate or personal property.

Acceptance

A buyers or sellers agreement to enter into a contract and be bound by the terms of the offer.

Accrued Interest

Interest that has been earned but not paid.

Acquisition Cost

The price and all fees required to obtain a property.

Acquisition Loan

Money borrowed for the purpose of purchasing a property.

Active Status

Most MLS systems use specific status to show if a home is available. Active means the home is available and has no accepted offers on it. Active/backup means the home has an accepted offer, but the seller is accepting backup offers. Pending means the home has an accepted offer and the seller is not accepting backup offers. The status meaning can vary by MLS.

Acre

A unit of land area used in the imperial and US customary systems. It is defined as the area of 1 chain by 1 furlong (66 by 660 feet), which is exactly equal to 43,560 square feet.

Additional Principal Payment

Extra money included in the monthly payment to help reduce the principal and shorten the term of the loan.

Adjoining

Contiguous, attached, sharing a common border.

Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage is a type of mortgage in which the rate of the outstanding balance varies throughout the life of the loan. With an adjustable rate mortgage, it is more difficult for the borrower to predict and plan for monthly payments. Traditionally, the initial interest rate will be fixed for a certain period of time until it resets from time to time, based on the current interest rates.

Adjusted Cost Basis

The cost of any improvements the seller makes to the property. Deducting the cost from the original sales price provides the profit or loss of a home when it is sold.

Adjusted Tax Basis

The original cost or other basis of the property, reduced by depreciation deductions and increased by capital expenditures.

Adjustment Period

The amount of time between interest rate adjustments in an adjustable-rate mortgage.

Adverse Possession

Adverse possession is a legal doctrine that allows a person to claim a property right in land owned by another. Common examples of adverse possession include continuous use of a private road or driveway, or agricultural development of an unused parcel of land. By favoring the adverse possessor over the true landowner, the doctrine of adverse possession rewards the productive use of land and punishes landowners who “sleep on their rights.”

After Repair Value (ARV)

This estimates the future value of the property after renovations and any repairs that are made to the property. This is not the value of the property at purchase but following the improvements that are made to the property and is an estimation, not a guarantee, based on what comparable properties have recently sold for.

Alligator Property

When the cost of mortgage payments, property taxes, insurance and maintenance on a rental property is greater than the income it brings in. Leads to negative cash flow. Usually occurs when buyer overpays for a property or purchases near the max value.

Alternative (Specialty) Investments

Property types that are not considered conventional institutional-grade real estate investments. Examples include congregate care facilities, self-storage facilities, mobile homes, timber, agriculture and parking lots.

Amenity

An amenity is a desirable or useful feature or facility within a property structure. Amenities are typically features that are highlighted and pitched to renters when they are looking to rent at a certain complex. Amenities can also be found within gated communities or other areas that have an HOA when talking about single family homes, townhomes, or condos. Examples include a pool, workout room, on-site laundry facilities, etc.

Amortization

The process of spreading out a loan into a series of fixed payments over a period of time. Although a purchasers total payment remains equal each period, the loan’s interest and principal will be paid off in different amounts each month.

Anchor

The tenant that serves as the predominant draw to a commercial property, usually the largest tenant in a shopping center.

Appraisal

An appraisal will typically happen during escrow or if a person is refinancing their home. It is an unbiased professional opinion of a home’s value, based on recently sold properties nearby.

Appraised Value

Appraised value is the estimated amount from an unbiased professional of the property’s value.

Appraiser

An unbiased professional that is contracted during the escrow or refinance process to assess the value of the property in question.

Appreciation

The increase in a home’s value over time. A home’s appreciation can be calculated based on the fair market value of comparable homes in the neighborhood of the property in question. Appreciation of a home can come through the natural appreciation of the value of the home over time or can be forced into the home through upgrades, remodels, or renovations that add value to the home.

Annual Percentage Rate (APR)

APR is expressed as a percentage that represents the actual yearly cost of funds over the term of the loan.

Arrears

Mortgage payment includes interest for prior month, or overdue payments in default.

Asbestos

A natural material made up of tiny fibers that is used as thermal insulation. Inhalation of asbestos fibers can lead to asbestosis and mesothelioma.

As-Is

A property that is stated “as-is” indicates the seller is unwilling to perform repairs. It could also mean the property’s price is “as-is.” It is common this price is lower than market prices in the local area.

Assessed Value

The assessed value is different from the appraised value in that it is the dollar value assigned to the property to measure applicable taxes. This determines the value of a property for tax purposes and takes comparable property sales and inspections of the property into consideration.

Asset Protection

Asset protection is a part of one’s financial planning in order to protect one’s assets from creditor claims. Both individuals and businesses use this technique to make sure they limit creditors access to claim valuable assets.

Assignee

The person to whom an agreement or contract is sold or transferred.

Assignment

A transfer of the lessee’s entire stake in the property. It is distinguishable from a sublease where the sublessee acquires something less than the lessee’s entire interest.

Assignor

The person who assigns or transfers an agreement or contract to another.

Assumable Mortgage

An existing mortgage which allows the next purchaser of a property to be liable for the payments and other obligations of the note and mortgage. Depending on the type of loan, the assumption of the obligation by this next purchaser may or may not require a qualification and approval process and may or may not release the original mortgagor (borrower) from further liability. A written release from the mortgagee (lender) is required to relieve the original mortgagor of responsibility.

Attached Home

Any property that is attached to another property. This could be half of a duplex, a condo or townhome, which is attached to another unit.

Attornment

A tenant’s formal agreement to be a tenant of a new landlord.

B

Backup Offer

A backup offer can be accepted by the seller but will not go into effect unless the current offer terminates.

Bad Title

A bad title is when the current sellers are not granted the ownership of title due to a multitude of reasons. These can be either legal or financial problems that lead to a bad title and therefore can prevent the seller from being able to sell the asset.

Balloon Mortgage

A balloon mortgage is a fixed rate, typically low payment loan, with a large remainder due at the end of the loan period. Frequently, these loans are re-amortized before the balloon payment comes due.

Bandit Signs

Bandit signs sport marketing messages from small businesses and local politicians, often sighted on yards and busy intersections. In real estate, these signs are often used to advertise to investors and motivated sellers.

Bank Owned Property

A bank owned property is one that is taken back into a bank’s inventory after the owner defaults on the mortgage loan. This type of property is likely to be sold at a discounted price or lower than other comparables in the same location.

Base Rent

A set amount used as a minimum rent with provisions for increasing the rent over the term of the lease.

Bid

An offer, stated as a price or spread, to buy whole loans or securities.

Bill of Sale

A written instrument given to pass title of personal property.

Bird Dog

When a real estate investor wants to enlist someone’s help in finding investment leads, they may hire a bird dog. These are individuals who are paid a fee to identify motivated sellers and distressed properties on behalf of others.

Bi-Weekly Mortgage

A mortgage that requires payments every two weeks and helps repay the loan over a shorter term.

Blanket Mortgage

A single mortgage which attaches to more than one property.

Bridge Loan

Mortgage financing between the termination of one loan and the beginning of another loan.

Broker

A real estate broker is not the same thing as a real estate agent. A broker is an agent that has also passed their broker license exam. The main difference between the two is that a real estate broker can also own a real estate agency or firm. Real estate agents are the ones that work for a real estate broker firm.

Broker Price Opinion

A broker price opinion is a report by a real estate agent or broker that is used to support the professional and unbiased opinion that helps determine the potential selling price. Based on comparable properties nearby that have sold recently, a BPO is used frequently by banks to price their properties for a quick sale.

BRRRR

The BRRRR strategy was coined by Brandon Turner and stands for Buy, Rehab, Rent, Refinance, Repeat. This strategy is where an investor buys a fixer-upper property using short-term funds (oftentimes cash, hard money, private money, or other creative means), fixes up the property, rents out the newly renovated property, and seeks a new long-term loan (a refinance) to pay off the old short-term loan. This refinance will free up the short-term capital that was used, allowing the investor to repeat the process again and again. For more information, check out the book “Buy, Rehab, Rent, Refinance, Repeat” by David Greene.

Buildable Acres

The area of land that is available to be built on after subtracting for roads, setbacks, anticipated open spaces and areas unsuitable for construction.

Building Code

The various laws set forth by the ruling municipality as to the end use of a certain piece of property. They dictate the criteria for design, materials and types of improvements allowed.

Building Standard Plus Allowance

The landlord lists, in detail, the building standard materials and costs necessary to make the premises suitable for occupancy. A negotiated allowance is then provided for the tenant to customize or upgrade materials.

Build-Out

Space improvements put in place per the tenant’s specifications. Takes into consideration the amount of tenant finish allowance provided for in the lease agreement.

Build-To-Suit

A method of leasing property whereby the developer/landlord builds to a tenant’s specifications.

Bundle of Rights

Ownership in real property implies a group of rights, such as the right of occupancy, use and enjoyment, the right to sell in whole or in part, the right to control the use, the right to bequeath, the right to lease any or all of the rights, the right to the benefits derived by occupancy and use of the property, etc.

Buy and Hold

The buy and hold strategy is long-term investing, where a real estate investor purchases a property with the intention of holding onto and renting it for the foreseeable future.

Buyer’s Agent

A buying agent or a purchasing agent is an agent that works with buyers to find and purchase a property. The buying agent works for a commission that is typically paid by the seller at closing.

Buyers List

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C

Call Option

A clause in a loan agreement that allows a lender to ask for the balance at any time.

Capital Expenditure (CapEx)

Refers to large expenses that are performed infrequently but should still be budgeted for. Examples include a new roof or systems like a furnace or air conditioning unit.

Capital Gains Tax

When you sell an asset for more than you paid for it, you trigger what is called a capital gains tax.

Capital Improvement

Capital improvement is the addition of permanent structural changes to a property that add to the property value or adapt the property to new uses.

Capitalization Rate aka “Cap Rate”

The capitalization rate or cap rate is used in the world of real estate investing to indicate the rate of return that an investor can expect on any given real estate investment property. This is measured by a formula based on the net income that the property is expected to produce and is calculated by dividing net operating income by the property asset value and is expressed as a percentage. This calculation is typically used by real estate investors to understand the potential ROI on an investment property. While it is a useful calculation, this should not be the only deciding factor when considering an investment property. The capitalization rate indicates the property’s intrinsic, natural, and un-leveraged rate of return.

Carport

A shelter for a car consisting of a roof supported on posts.

Carrying Costs

When an investor purchases a property to rehab, they must factor carrying costs into their list of expenses. These are the expenses incurred from the time the property is purchased until the time that it is sold, including interest payments, taxes, insurance and utilities.

Cash Flow

In real estate terms, cash flow is the byproduct of owning a rental property and leasing it to tenants for a monthly rental income. To elaborate on this, real estate investors look for rental properties reaping positive cash flow returns, or, in other words, they invest in positive cash flow properties.

Cash Reserves

Cash reserves refer to the money an individual has set aside for unexpected expenses like home improvement emergencies, such as plumbing issues, appliance replacements, flooding, etc., as well as vacancies, capital expenditures, and non-paying tenants.

Cash-On-Cash Return (COCR or CRR)

A cash-on-cash return is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property.

Cash-Out Refinance

A cash-out refinance will replace a person’s existing mortgage with a new home loan for more than is currently owed on a property. The difference is refunded to the property owner in cash and can be spent on home improvements, debt consolidation, or any other financial needs. In order to use a cash-out refinance, a property owner would need to have built up equity in the property.

Caveat Emptor

Let the buyer beware.

Certificate of Insurance

A document issued by an insurance company to verify the coverage.

Certificate of Occupancy

A document issued by a local government or agency permitting the structure to be occupied by members of the public.

Certificate of Title

This is the state-issued document that identifies the owner of real property. A certificate of title provides documentary evidence of the right of ownership so that the seller is actually able to transfer title and sell a property.

Certified Commercial Investment Member (CCIM)

A CCIM (Certified Commercial Investment Member) is a recognized expert in the commercial and investment real estate industry. The designation process ensures that CCIMs are proficient not only in theory, but also in practice.

Chain of Title

This is the sequence of historical transfers of a title of real property from sellers to buyers. This is a valuable tool to identify the past owners of any given property. This chain will follow the title from the original owners to the current owners.

Class “A”

A real estate rating generally assigned to properties that will generate the highest rents per square foot due to their high quality and/or superior location.

Class “B”

Good assets that most tenants would find desirable but lack attributes that would permit owners to charge top dollar.

Class “C”

Buildings that offer few amenities but are otherwise in physically acceptable condition and provide cost-effective space to tenants who are not particularly image-conscious.

Clear Title

A clear title is a title that is clear of any type of lien or anything else that might pose a question about legal ownership. An owner with a clear title has legal ownership of the title and property and is able to transfer this title legally to a purchaser.

Closing

The closing is when the buyer and seller sign the official papers to transfer ownership.

Closing Costs

This is any cost that is associated with the purchase of a property that is due at “closing.” This typically includes the down payment on the property and any other fees associated with purchasing a home, such as title insurance, taxes, lender costs, and some upfront housing expenses.

Closing Date

The date on which the seller delivers the deed and the buyer pays for the property.

Closing Statement

An accounting of funds from a real estate transaction, also known as a HUD-1.

Cloud on Title

This is a document, claim, or unreleased lien that might invalidate or make it difficult to transfer a title. Cloud on title is usually discovered during the title search once a property is under contract.

Co-Borrower

A co-borrower is the second person on a mortgage loan. This can be anyone from a parent or friend to a significant other or spouse. Co-borrowers are used to help qualify for a loan and are also equally responsible for the mortgage should the initial borrower default.

Commercial Real Estate (CRE)

A commercial property refers to a real estate property that is used for business purposes or large scale residential dwellings, such as apartment buildings.

Common Area

For lease purposes, the areas of a building and its site that are available for the non-exclusive use of all its tenants, e.g., lobbies, corridors, etc.

Common Area Maintenance

Rent charged to the tenant in addition to the base rent to maintain the common areas. Examples include snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc.

Comparables

Investors, agents and lenders alike find it useful to identify comparables, or similar homes in close proximity, to derive a precise value for the property in question. The act of conducting this research is referred to as a comparative market analysis (CMA).

Comparative Market Analysis (CMA)

This is an examination of the prices of different properties within the same area as the property a buyer is considering for purchase. Real estate agents perform this analysis to determine an accurate listing price.

Concessions

Cash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, moving expenses or other monies expended to influence or persuade a tenant to sign a lease.

Conforming Loan

A loan which has underwriting criteria consistent with (i.e., conforming to) those strict guidelines of Fannie Mae, Freddie Mac, FHA or VA. These are typically the lowest interest rate loans with very good terms.

Consumer Price Index

The Consumer Price Index indicates how much prices of consumer goods and services have increased over a set period of time.

Contingency Clause

A contingency clause is a portion of a contract that will require certain things to take place before the contract can be considered valid. This often is a part of a conditional offer made on a property during a real estate transaction.

Contract Assignment

A wholesaler operates by negotiating below-market-value deals with motivated sellers. They then sell the property contract to an end buyer, such as a rehabber, by using a legal document called a contract assignment.

Contract For Deed

A Contract for Deed is a tool that can allow buyers who either don’t qualify for traditional lending options or who want a faster financing option to purchase property.

Conventional Loan

A conforming loan with no government guarantee; that is, a Fannie Mae or Freddie Mac loan. (See definition of “conforming loan” above.).

Conversion

Changing property to a different use or form of ownership.

Conveyance

Most commonly refers to the transfer of title to property between parties by deed. The term may also include most of the instruments with which an interest in real estate is created, mortgaged or assigned.

Cost-Approach Land Value

The estimated value of the fee simple interest in the land as if vacant and available for development to its highest and best use.

Co-Tenancy Clause

A co-tenancy clause in retail lease contracts allows tenants to reduce their rent if key tenants or a certain number of tenants leave the retail space.

Counteroffer

A rejection of an offer with a simultaneous substitute offer.

Coupon

The nominal interest rate charged to the borrower on a promissory note or mortgage.

Covenants, Conditions & Restrictions (CC&R)

Covenants, Conditions & Restrictions, commonly called CC&Rs, are a set of rules established by a developer or homeowners association that govern residences in a particular neighborhood or condominium. CC&Rs may put restrictions on parking, paint colors, noise-levels and pets, for example.

Creative Financing

Any financing arrangement other than a traditional mortgage from a third party lending institution.

Crawl Space

An area of limited height under a floor, giving access to wiring and plumbing.

Curb Appeal

This term is often used to describe the appeal of a property for sale when the property is viewed from the street.

D

Debt Service Ratio (DSCR)

The debt service coverage ratio (DSCR), also known as “debt coverage ratio” (DCR), is the ratio of operating income available to debt servicing for interest, principal and lease payments.

Debt-to-Equity Ratio

Debt-to-equity (D/E) ratio is a measure of ownership. This ratio helps you determine how much of your property is actually yours (if you took out a mortgage to finance it) and how much you owe in debt.

Debt-to-Income Ratio (DTI)

A buyer’s debt-to-income ratio compares how much a buyer owes monthly versus how much they earn monthly. This ratio is used during the underwriting process of escrow to determine how much house you can afford as a buyer. More specifically, it is the percentage of gross monthly income that goes toward payments for rent, mortgages, credit cards, car payments, or any other debt the buyer possesses.

Deed

A deed is a legal document that passes and confirms an interest, right, or property and is signed, attested, delivered, and sealed. It is commonly associated with transferring the title of a property from the seller to the buyer.

Deed Book

Deed books can be found at the county courthouse and are under the jurisdiction of the registrar of deeds. The deed book contains the record of property transfers.

Deed in Lieu of Foreclosure

The act of giving property back to the lender without foreclosure.

Deed Of Trust (DOT)

A Deed of Trust is a type of secured real-estate transaction that some states use instead of mortgages. A deed of trust involves three parties: a lender, a borrower, and a trustee. The lender gives the borrower money. In exchange, the borrower gives the lender one or more promissory notes.

Default

Within real estate, default is when a property owner fails to make monthly mortgage payments and therefore defaults on their mortgage loan. When the mortgage payments are not made and a borrower defaults on the loan, the property can then be taken away by the lender through a process called foreclosure.

Defeasance

A clause in mortgage that gives the borrower the right to redeem the property after default by paying the full indebtedness and fees incurred.

Deficiency Balance

This is the amount of the loan that remains unpaid after the lender has taken the property back from the owner.

Delinquent

This term is typically used when a borrower is late or overdue on a mortgage payment.

Demising Wall

The partition wall that separates one tenant’s space from another or from the building’s common areas.

Density Test

An analysis of soil to determine if the surface can support the foundation of a house.

Depreciation

Depreciation is the concept that when you buy something, through normal use and wear & tear, it degrades. Depreciation allows for a tax benefit for that degradation. Any fixed asset or capital good with a finite usable lifespan can depreciate.

Distraint

The act of seizing personal property of a tenant in default based on the right and interest a landlord has in the property.

Distressed property

A property becomes distressed when a homeowner defaults on their mortgage payments, is delinquent on paying property taxes, or is condemned due to disrepair.

Double Close

Also referred to as a back-to-back closing, a double closing will witness a wholesaler purchase a property and immediately resell it to an end buyer. A double close is different from an assignment of contract because the wholesaler takes legal possession of the property for a short amount of time.

Down Payment

The portion of the purchase price paid by a buyer to a seller from sources of funds outside of those provided by a lender.

Downturn

Downturn is when the economy or real estate market has softened, resulting in properties typically taking longer to sell.

Dual Agency

Dual agency is when a real estate agent represents both the buyer and the seller in a single transaction.

Due Diligence

The due diligence period is a time frame allowing a buyer to fully examine a property. This is often done by hiring specific experts to inspect and perform tests. Buyers who may want to renegotiate the contract based on the results.

Due On Sale Clause (DOS)

A due-on-sale clause is a clause in a loan or promissory note that stipulates that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance. Can also be referred to as an Acceleration Clause.

E

Earnest Money

After an offer is accepted, a deposit is made to the seller by the buyer as a symbol of good faith that you will be following through on buying the property. This deposit can be forfeited if the buyer does not follow through on the purchase.

Easement

Easement is the legal right to use someone else’s land for a specific and limited purpose. When someone is granted an easement, they are legally allowed to use the property, but the property title and ownership remain in the possession of the owner.

Effective Gross Income

Effective gross income, or EGI, can be calculated by taking the potential gross income from an investment property, adding other forms of income generated by that property, and subtracting vacancy and collection losses.

Effective Gross Rent

The net rent generated, after adjusting for tenant improvements and other capital costs, lease commissions and other sales expenses.

Effective Rent

The actual rental rate to be achieved by the landlord after deducting the value of concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease.

Egress

When buying a property, there are certain things that qualify a room as “conforming” or “non-comforming.” For example, a basement room with regular windows would be considered a “non-comforming” bedroom. Egress is a way to exit the property, and in order for a room to be a legal bedroom, it must have two points of egress or exit.

Ejectment

This is a common law term for the civil action to recover the possession of a title to the land.

Eminent Domain

Eminent domain refers to the right of the government to take private property and convert it to public use.

Employer-Assisted Housing

A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

Encroachment

The intrusion of a structure that extends, without permission, over a property line, easement boundary or building setback line.

Encumbrance

A right to, or interest in, real property held by someone other than the owner that does not prevent the transfer of fee title.

Equity

Equity is the difference between the market value of a property and the amount of money that is still owed on the loan. Equity can accrue naturally through the market or can be forced into the home based on improvements made by the owner.

Equity Stripping

This is a set of strategies designed to reduce overall equity in a property. These can be used by debtors as means of making properties unattractive to creditors.

Escalation Clause

A clause in a lease that provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes and operating costs.

Escheat

The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.

Escrow

A financial account that is funded by a homeowner’s mortgage payments, used to pay for homeowners insurance and property taxes.

Escrow Agent

An escrow agent is the person that holds property in trust for third parties while a transaction is finalized on the property in question.

Escrow Agreement

This is the contract that defines an arrangement between parties where one party deposits an asset with a third party. This third party then delivers the asset to the second party when the conditions of the contract are met.

Estate

A word with deep legal origins, “estate” has been consistently defined for centuries while adapting to the needs of the times. In essence, one’s estate is everything they own; it’s everything that belongs to a person.

Eviction

The legal method for removing a tenant from a rental property. Eviction typically takes place after the tenant fails to make their monthly rent payments on time.

Exclusive Agency Listing

A written agreement between a real estate broker and a property owner in which the owner promises to pay a fee or commission to the broker if specified real property is leased during the listing period.

Exit Strategy

An exit strategy is how an investor plans to cash out on an investment property. This can include strategies such as renting out a buy-and-hold property or selling a rehabbed property.

F

Facade

The outside front wall of a building.

Face Rental Rate

The asking rental rate published by the landlord.

Fair Housing Act

The Fair Housing Act was initiated to make sure that everyone who applies for housing has the right to be treated the same. For landlords, this means you cannot discriminate against potential tenants based on color, disability, familial status, national origin, race, religion, or sex.

Fair Market Rent (FMR)

Fair market rent (FMR) is the monthly rent a particular property type is likely to receive.

Fair Market Value (FMV)

This is an estimate of the market value of a property. At its simplest, it is the price that a property would sell for in a fair and open market.

Fannie Mae (FNMA)

The Federal National Mortgage Association – A quasi-governmental corporation authorized to sell debentures in order to supplement private mortgage funds by buying and selling FHA (Federal Housing Administration) and VA (Veterans Affairs) loans at market prices.

Formal Dining Room (FDR)

FDR is a room for dining that is separate from an eat-in kitchen or breakfast nook found in many open floor plans in houses built today. FDRs are usually adjacent to the kitchen to make access easier.

Federal Housing Administration (FHA)

The Federal Housing Administration, generally known as “FHA”, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories.

Fee Simple

A fee simple represents absolute ownership of land; therefore, the owner may do whatever he or she chooses with the land.

FHA Loan

This is a type of mortgage loan that is insured by the Federal Housing Administration. These types of loans are popular among first time home buyers due to the low down payment requirements—as low as 3.5%—as well as a more lenient credit score requirement.

First Mortgage

This is the first mortgage loan on a property and has priority over all other liens or claims on a property in the event of a default on the home.

First Refusal Right/Right of First Refusal

A lease clause giving a tenant the first opportunity to buy a property or lease additional space in a property at the same price and on the same terms and conditions as those contained in a third-party offer that the owner has expressed a willingness to accept.

First-Generation Space

Generally refers to new space that is currently available for lease and has never before been occupied by a tenant.

Fix and Flip

This term is coined for properties that need a lot of rehab to make them appealing to buyers. Real estate investors will buy the property, renovate it, and resell the property for a profit.

Fixed Price Purchase Option

A fixed price purchase option is the right, but not the obligation, to buy a leased property at the end of a lease term at a price determined from the onset of the lease agreement.

Fixed Payment Mortgage

A loan secured by real property which features a periodic payment of interest and principal which is constant over the term of the loan.

Fixed Rate Mortgage

This is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan.

Floodplain

A level land area subject to periodic flooding from a contiguous body of water.

Forbearance

A course of action a lender may pursue to delay foreclosure or legal action against a delinquent borrower.

For Sale By Owner (FSBO)

For sale by owner is a process by which a homeowner sells their home directly instead of going through a brokerage firm to sell the property. The benefit to the seller is that there is no commission to pay out at the end of the selling process.

Forced Equity

Forced equity is equity that is instantly put into the home by making improvements to it. By improving the home, you not only increase the home’s market value, but also increase the market rent, which permits you to make more money each month and pay off your property faster. This is the best way to build equity in a home versus waiting for the home’s market value to increase naturally.

Foreclosure

Foreclosure is the legal process in which a lender or bank takes control of a property, evicts the homeowner, and sells the home after a homeowner is unable to make full principal and interest payments on his or her mortgage, as decided upon in the mortgage contract.

Fractional Ownership

Fractional ownership is a method in which several unrelated parties can share in, and mitigate the risk of, ownership of a real estate property.

Freddie Mac (FHLMC)

Federal Home Loan Mortgage Corporation (Freddie Mac) A private corporation founded by Congress, the Federal Home Loan Mortgage corporation’s mission is to promote stability and affordability in the housing market by purchasing mortgages from banks and other loan makers.

G

Gable Roof

One with a triangle, with the ridge forming an angle at the top and each eave forming an angle at the bottom.

Garden Apartments

A housing complex whereby some or all tenants have access to a lawn area.

General Contractor

The prime contractor who contracts for the construction of an entire building or project, rather than just a portion of the work. The general contractor hires subcontractors, coordinates all work and is responsible for payment to subcontractors.

Gentrification

A process where a neighborhood undergoes urban development, involving an influx of higher-income residents to an otherwise abandoned or rundown area. Gentrification is a controversial political and social topic.

Gift Of Equity

When a family member sells you a property for below market value. This difference is considered an amount of equity. This equity can be used toward the down payment or to help pay off debt in order to qualify to buy the home.

Ginnie Mae (GNMA)

The Government National Mortgage Association (commonly referred to as Ginnie Mae is a U.S. government corporation that guarantees the timely payment of principal and interest on mortgage-backed securities (MBSs) issued by approved Ginnie Mae lenders.

Graduated Lease

An agreement under which a tenant and landlord agree to a periodic adjustment of monthly payments. This typically occurs when the market conditions increase and the landlord then needs to increase the price on the lease.

Graduated Payment Mortgage (GPM)

A mortgage that requires a borrower to make larger monthly payments over the term of the loan. The payment is unusually low for the first few years but gradually rises until year three or five, then remains fixed.

Gross Rental Income (GRI)

Gross Rental Income (GRI) is the amount of money collected in rent plus any additional income such as application fees, pet fees, parking fees, advance rent, or any expenses paid by the tenant to the landlord that are not required as part of the lease. Security deposits paid by the tenant are not considered to be income. Instead, refundable deposits are treated as a short-term liability on the balance sheet for the rental property because the deposit will eventually be returned to the tenant.

Gross Leasable Area

The portion of total floor area designed for tenants’ occupancy and exclusive use, including storage areas. It is the total area that produces rental income.

Gross Lease

A lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, utilities, etc.

Gross Rent Multiplier (GRM)

Gross Rent Multiplier (GRM) is the ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, and utilities; GRM is the number of years the property would take to pay for itself in gross received rent. For a prospective real estate investor, a lower GRM represents a better opportunity.

Ground Lease

An agreement between a tenant and a property owner that allows the tenant to develop a piece of property during the lease period. After the lease, all of these developments are to be transferred over to the property owner.

H

Hard Money Lender (HML)

A private lender that uses property collateral instead of credit scores in order to qualify lending a buyer money.

Hard Money Loan

A way to borrow without using traditional mortgage lenders. Loans come from individuals or investors who lend money based (for the most part) on the property you’re using as collateral and not based off of credit scores. When loans need to happen quickly, or when traditional lenders will not approve a loan, hard money may be the only option.

Hazard Insurance

Protects a homeowner against the costs of damage from fire, vandalism, smoke, and other causes. When you take out a mortgage, the lender will require you to take out hazard insurance to protect their investment; many lenders will incorporate the insurance payment into your monthly mortgage payment.

HELOC

A home equity line of credit (HELOC) is when a property owner borrows money against the equity that has been built up in said property.

Hiatus

A gap between two parcels of land that is not included in the legal description of either property.

HOA Fees

Homeowners are obligated to pay dues to the HOA, which can be anything from $100 to $10,000 a year, depending on the building/neighborhood and its amenities. This is an added monthly expense on top of a mortgage payment and should be considered as such when home buying.

Holding Costs

When real estate investors purchase property, their main goal is to sell the property for a profit. But during this process, the investor must take into consideration the amount of money they will need to pay out before the investment is re-sold. Holding costs are also known as carrying costs. When calculating the holding costs, investors must include the purchase price, and deduct operating income to come to an estimated figure.

Hold-Over Tenant

A tenant retaining possession of the leased premises after the expiration of a lease.

Home Appraisal

Real estate appraisal, property valuation or land valuation is the process of developing an opinion of value, for real property. Real estate transactions often require appraisals because they occur infrequently and every property is unique, unlike corporate stocks, which are traded daily and are identical.

Home Equity

This is the current market value of your home, minus what a borrower still owes on a mortgage.

Home Equity Loan

A type of loan in which the borrower uses the equity of his or her home as collateral.

Home Inspection

Something that a home buyer will pay to have conducted during the escrow period. A home inspector will come to the property and look at different aspects of the home that may deter a buyer from wanting to follow through with the purchase.

Home Warranty

An annual service contract that covers the repair or replacement of important appliances’ and systems’ components in the event they break down.

Homeowners Association (HOA)

The primary purpose of a homeowners association is to manage a large property’s or neighborhood’s common areas, such as roads, parks, and pools.

Homeowners Insurance

Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. The policy typically combines personal liability insurance and property hazard insurance coverage for a dwelling and its contents. See also homeowner’s insurance.

House Hacking

A strategy in which the property owner lives within the investment property and lives for free (or almost free) based on other tenants paying rent that covers the whole mortgage. This strategy is typically done with a multifamily unit but can also be done in single family homes by renting out extra rooms.

U.S. Department of Housing and Urban Development (HUD)

A federal government agency established to implement certain federal housing and community development programs.

Housing Code

Local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.

Housing Starts

The number of new projects for residential construction that began over the duration of any given month—and is a pivotal economic indicator.

HUD-1 Statement

A form used by a settlement or closing agent itemizing all charges imposed on a borrower and seller in a real estate transaction. This form gives a picture of the closing transaction, and provides each party with a complete list of incoming and outgoing funds. “Buyers” are referred to as “borrowers” on this form even if no loan is involved. The HUD-1 is also known as a “closing sheet” or “settlement form”.

HVAC

Heating, Ventilating, and Air Conditioning (HVAC) systems are used to heat and cool a house. Sometimes HVAC units have integrated heating and cooling systems, while other times the HVAC system of a rental property may consist of an air conditioning unit and a separate furnace unit. The ventilating part of an HVAC system is made up of ductwork that runs through the attic or crawl space under the floor, and the vents that allow air to flow into the individual rooms.

I

Implied Warranty of Habitability

A legal doctrine that requires landlords to offer and maintain livable premises for their tenants. If a landlord fails to provide habitable housing, tenants in most states may legally withhold rent or take other measures, including hiring someone to fix the problem or moving out.

Individual Retirement Account (IRA)

An account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.

Inflation

In simple terms, inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time.

Ingress

The right to enter a property.

Inspection Contingency

A term in the purchase agreement that lets the buyer: Hire a home inspector to look at the home, Receive a report from the inspector on the home’s condition and issues, Negotiate a sharing of the new costs with the seller or terminate the purchase agreement and get their earnest money deposit back.

Income Property

Real estate that is owned or operated to produce revenue.

Interest

Within real estate, interest can be defined as the cost of borrowing money and is usually expressed as a yearly percentage that is paid as part of your monthly loan payment.

Interest Only Loan (I/O)

A loan in which the borrower pays only the interest for some or all of the term, with the principal balance unchanged during the interest-only period.

Interim Interest Mortgage

The interest that accrues on your mortgage between the closing date and the date of record. This is the time between when you close on the mortgage and the end of the month.

Internal Rate Of Return (IRR)

The internal rate of return is a measure of an investment’s rate of return.

Intestate

When a person dies before determining a will. An intestate estate is also one in which the will presented to the court was deemed to be invalid.

J

Joint Tenancy

The holding of an estate or property jointly by two or more parties, the share of each passing to the other or others on death.

Joint Tenants

In estate law, joint tenancy is a special form of ownership by two or more persons of the same property. The individuals, who are called joint tenants, share equal ownership of the property and have the equal, undivided right to keep or dispose of the property.

Joint Venture (JV)

A commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities.

Judicial Foreclosure

Foreclosure cases that go through the court system.

Jumbo Loan

A type of mortgage that is used to finance real estate that is too expensive for a conventional conforming loan.

K

L

Land Lease

When you purchase a home, you typically own the home and the land the property is built on as well. However, a land lease is when you would pay rent to the landowner for the land even while owning the home.

Landlocked

Condition of a lot that has no access to public thoroughfare except through an adjacent lot.

Landlord

A person or company who owns property that they allow other people to live in, in exchange for monthly rent.

Landlord’s Warrant

A warrant from a landlord to levy upon a tenant’s personal property (e.g., furniture, etc.) and to sell this property at a public sale to compel payment of the rent or the observance of some other stipulation in the lease.

Land Trust

A legal entity that takes ownership of, or authority over, a piece of property at the behest of the property owner.

Land Value

The value of a piece of property, including both the value of the land itself as well as any improvements that have been made to the property over time.

Lease/Lease Agreement

The legally binding contract that governs the circumstances in which a landlord will rent their property to a tenant.

Lease Commencement Date

The date usually constitutes the commencement of the term of the lease, whether or not the tenant has actually taken possession, so long as beneficial occupancy is possible.

Lease Option (L/O)

An agreement that gives a renter a choice to purchase the rented property during or at the end of the rental period.

Lease Purchase

A lease combined with a purchase agreement that obligates the lessee (tenant) to purchase the property under specified conditions

Leasing Fee

A leasing fee is paid to the property manager when they sign a lease with a new tenant. If a tenant renews their lease there is a re-leasing fee.

Legal Owner

The legal owner has title to the property, although the title may actually carry no rights to the property other than as a lien.

Lender

People or companies that allow you to borrow money with the promise that it will be repaid. Repayment includes principal and interest, and may include monthly payments or a lump sum payment.

Lessee

A person who rents land or property from a lessor. The lessee is also known as the “tenant” and must uphold specific obligations as defined in the lease agreement and by law.

Lessor

The property owner or landlord that rents out the property to the lessee.

Let

To rent a property to a tenant.

Leverage

The use of various financial instruments or borrowed capital—in other words, debt—to increase the potential return of an investment. It commonly used when talking about the real estate market.

Leveraged Return

The return calculated on an investment that takes advantage of a mortgage. It is calculated by subtracting the expenses incurred by the property (including the interest payment on the mortgage) from the income produced by the property and dividing that by the initial investment amount. Calculation: Income – expenses (including interest payment) / initial investment amount. This differs from the cash on cash return because it includes the principal pay down as part of the return.

Lien

A legal interest in a property, which must be paid in full before the property can be sold. If there is a lien on a property, this is typically identified in the escrow process and will break the contract.

Lien Waiver

In the mechanics lien process, a lien waiver is a document from a contractor, subcontractor, materials supplier, equipment lessor or other party to the construction project stating they have received payment and waive any future lien rights to the property for the amount paid.

Line Of Credit (LOC)

A line of credit is a preset amount of money that a bank or credit union has agreed to lend you. You can draw from the line of credit when you need it, up to the maximum amount. You’ll pay interest on the amount you borrow.

List Price

The price at which a property is listed by the seller.

Listing

What a property for sale is often referred to as by a real estate broker or agent.

Live-In Flip

This is when a property purchaser lives in the property as they flip in order to limit costs during the time of the flip.

Loan Estimate

A three-page form that a potential borrower receives after applying for a mortgage. The loan estimate tells the borrower important details about the loan requested. The form provides important information, including the estimated interest rate, monthly payment, and total closing costs for the loan.

Loan Policy

Protects the lender’s interests and is based on the dollar amount someone is borrowing from the bank, not on the full value of the property.

Loan-To-Value (LTV)

A financial term used by lenders to express the ratio of a loan to the value of an asset purchased.

Long-term lease

In most markets, this refers to a lease whose term is at least three years from initial signing to the date of expiration or renewal.

Lot

Generally one of several contiguous parcels of land making up a fractional part or subdivision of a block, the boundaries of which are shown on recorded maps and plats.

Lot Line

A line bounding a lot as described in a property survey.

M

Maker

One who creates or executes a promissory note and promises to pay the note when it becomes due.

Management Agreement

A contract between the owner of property and someone who agrees to manage it.

Market Rental Rates

The rental income that a property most likely would command in the open market, indicated by the current rents asked and paid for comparable space.

Market Value

The price an asset would fetch in the marketplace.

Maximum Allowable Offer (MAO)

The maximum price point at which investors in a real estate deal can realistically expect to pull in a profit while minimizing the risk of losing money.

Metes and Bounds

The boundary lines of land described by listing the compass directions and distances of the boundaries. Originally, metes referred to distance and bounds referred to direction.

Mortgage

A legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.

Mortgage Broker

Mortgage brokers are mortgage experts who provide different lenders, loan types, and rates for buyers without upfront charges.

Mortgage Insurance Premium

An insurance policy used in FHA loans if your down payment is less than 20 percent. The FHA assesses either an “upfront” MIP at the time of closing or an annual MIP that is calculated every year and paid in 12 installments.

Mortgagee

The entity to whom the mortgage is given; i.e., the lender.

Mortgagor

The entity who gives the mortgage; i.e., the borrower.

Motivated Sellers

Investors are attracted to homeowners who are motivated to sell, as it presents the opportunity for negotiating a favorable purchase price. Homeowners might become motivated to sell if they are pressed for time, are nearing foreclosure, or own property out of state.

Multi-Family Home (MFH)

A building or structure that is designed to house several different families in separate housing units.

Multiple Listing Service (MLS)

A service used by a group of real estate brokers. Once a buyer begins working with a real estate agent/broker, they will typically be set up with an MLS email drip that will send new listings every day.

N

NAR National Association of REALTORS® (NAR)

The largest trade union in American with about 1.4 million members working in all fields of the residential and commercial real estate industries. There are around 1,200 local associations/boards, and 54 state and territory associations of REALTORS®.

National Housing Act

The American Housing Act of 1949 was a sweeping expansion of the federal role in mortgage insurance and issuance and the construction of public housing.

Negative Equity

Occurs when the value of real estate property falls below the outstanding balance on the mortgage used to purchase that property. Negative equity is calculated by taking the current market value of the property and subtracting the balance on the outstanding mortgage.

Negotiation

The process of bargaining that precedes an agreement.

Net Cash Flow

Generally determined by net income plus depreciation less principal payments on long-term mortgages.

Net Investment in Real Estate

Gross investment in real estate less the outstanding debt balance.

Net Operating Income (NOI)

A calculation used to analyze the profitability of income-generating real estate investments. NOI equals all revenue from the property, minus all reasonably necessary operating expenses.

Net Purchase Price

Gross purchase price less associated debt financing.

Net Real Estate Investment Value

The market value of all real estate less property-level debt.

Net Worth

Financial resources or other wealth belonging to a particular person, especially when used for investment purposes.

No-Appraisal Refinancing

A type of home loan refinancing for which the lender does not require an appraisal, meaning an independent opinion of the property’s current fair market value is not necessary.

Non-Conforming Loan

A loan not meeting the underwriting requirements of Fannie Mae and Freddie Mac. I.e., the vast majority of loans.

Note

Mortgage notes are a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise.

Note Broker

An individual who acts as an intermediary between a holder of an existing note and a prospective purchaser of the note.

O

Offer

When a buyer puts in a price offer on a home that the seller can accept or counter.

Open House

Held by the selling agent in order for prospective buyers to come and look at a property. It enables interested parties to view property without scheduling a showing with their agent.

Open Listing

A non-exclusive real estate contract in which more than one broker may be employed to sell a property, including the owners themselves.

Open Space

An area of land or water dedicated for public or private use or enjoyment.

Ordinances

Municipal rules governing the use of land.

Originator

A company that sources and underwrites commercial and/or multifamily mortgage loans.

Owner Occupied (OO)

Owner-occupancy or home-ownership is a form of housing tenure where a person, called the owner-occupier, owner-occupant, or home owner, owns the home in which they live.

Owner Financing

A loan provided by the seller of a property or business to the purchaser. See Seller-Financed Sale below

P

Parking Ratio

Dividing the total rentable square footage of a building by the building’s total number of parking spaces provides the amount of rentable square feet per each individual parking space.

Partial Sales

The sale of an interest in real estate that is less than the whole property. This may include a sale of easement rights, parcel of land or retail pad, or a single building of a multi-building investment.

Passive Income

Income derived from business investments in which the individual is not actively involved, such as a real estate investment.

Permanent Loan

The long-term mortgage on a property.

Personal Use Property

A type of property that an individual does not use for business purposes or as an investment.

PITI

PITI stands for principal, interest, taxes, and insurance. Together, these are the elements that make up a conventional loan’s mortgage payment.

Plat

Map of a specific area, such as a subdivision, that shows the boundaries of individual lots together with streets and easements.

Pocket Listing

A signed real estate listing that is not entered into the multiple listing service, or MLS.

Power Of Sale

A clause written into a mortgage note authorizing the mortgagee to sell the property in the event of default in order to repay the mortgage debt.

Pre-Approval Letter

A document that states the loan amount a lender is willing to extend to a borrower. It is not a guarantee to lend, but it carries significant weight, especially to other parties in a real estate transaction, such as agents and sellers.

Prime Space

Typically refers to first-generation space that is available for lease.

Private Money Loan

Private money lending means borrowing money from an individual investor. Real estate investors use private lenders to finance deals that either won’t qualify for a traditional loan or can’t wait the usual 30 days or so that a conventional mortgage loan needs for approval.

Private Mortgage Insurance (PMI)

A type of mortgage insurance buyers might be required to have if he or she uses anything other than a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender if the buyer stops making monthly loan payments.

Probate

The legal process through which a deceased person’s estate is properly distributed to heirs and designated beneficiaries and any debt owed to creditors is paid off.

Proof Of Funds

A document that stipulates that a buyer is financially capable of securing a mortgage or has the funds necessary to make an all-cash purchase in a real estate transaction.

Property Manager

An individual or a company that is hired by a property owner in order to run the rental property. Typically property owners will hire a property management company to run it day to day because they are unwilling or don’t have the time to do so.

Property Taxes

Taxes based on the value of the home that are paid monthly by the homeowner, as part of a mortgage payment.

Pro Rata

In the case of a tenant, the proportionate share of expenses for the maintenance and operation of the property.

Purchase Agreement

A legal contract in real estate between the buyer and seller where all terms and conditions are outlined and agreed upon prior to closing.

Q

Quiet Title

A quiet title action is a circuit court action, or lawsuit, intended to establish or settle the title to a property, especially when there is a disagreement. It is a lawsuit brought to remove a claim or objection on a title.

Quitclaim Deed

Most often used to transfer property within a family. For example, when an owner gets married and wants to add a spouse’s name to the title or when the owners divorce and one spouse’s name is removed from the title.

R

Raw Land

Unimproved land that remains in its natural state.

Real Estate

Property containing land, buildings, or both.

Real Estate Agent

Licensed professionals who arrange real estate transactions for either a buyer or a seller.

Real Estate Auction

Financial institutions will routinely sell properties, such as those they repossessed through foreclosure, at auctions available to the public.

Real Estate Broker

Real estate agents but with a broker’s license. They work for a real estate brokerage and assist buyers or sellers in the transfer of ownership of a property, much like a real estate agent.

Real Estate Owned (REO)

The name given to foreclosed-upon real estate. This happens when a borrower fails to make monthly mortgage payments and therefore defaults on the loan. In this case, the property goes back to the bank or lender for sale. It is typically sold at a discounted price.

Real Property

Land, and generally whatever is erected or affixed to the land that would be personal property if not attached.

Realtor

A person who acts as an agent for the sale and purchase of buildings and land; a real estate agent.

Recession

A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

Refinance Rate

One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance.

Refinancing

Done to allow a borrower to obtain a better interest term and rate. The first loan is paid off, allowing the second loan to be created, instead of simply making a new mortgage and throwing out the original mortgage.

Rehabilitation (rehab)

The repairs that need to be done to make an asset tenant-ready. Prior to purchase, properties are given a primary inspection by our ILMs to ensure that extensive repairs are not necessary. Rehabilitation can include minor fixes such as paint and lighting upgrades but can also extend to more large-scale repairs such as roof replacement and plumbing upgrades. Should such large-scale upgrades be necessary, the investor will be notified prior to purchase and can choose to forego the purchase. Rehabilitation costs are generally included in the purchase price.

REIT

REIT stands for real estate investment trust. Essentially, REITs are corporations that own and manage a portfolio of real estate properties and mortgages.

Remote Investing

Empowers investors to own property that is geographically removed from their own primary residence. Traditionally real estate investors tend to purchase property that is “in their backyard” so they can keep an eye on their investment. This generally means that the investor is also a landlord and must keep up with the daily maintenance of the property. Remote investors purchase property in areas that have favorable returns. Remote investing allows investors to take advantage of lower property costs or higher rents that may not be available near their primary residence.

Renewal Option

A clause giving a tenant the right to extend the term of a lease.

Rent Compensation

Or fee paid for the occupancy and use of any rental property, land, buildings, equipment, etc.

Rent Commencement Date

The date on which a tenant begins paying rent.

Rental Concession

What landlords offer tenants to secure their tenancy. While rental abatement is one form of a concession, there are many others such as increased tenant improvement allowance, signage, below-market rental rates and moving allowances.

Rent To Own Homes (RTO)

When a tenant signs a rental agreement or lease that has an option to buy the house or condo later — usually within three years. The renter’s monthly payments will include rent payments and additional payments that will go towards a down payment for purchasing the home.

Repair Costs

Repair costs within real estate investing are typically applied to fix and flips or even BRRR properties where there is repairs and renovations to be done. Repair costs should be properly calculated before buying any investment property in order to accurately assess a deal.

Reserve Fund

A savings account or other highly liquid asset set aside by an individual or business to meet any future costs or financial obligations, especially those arising unexpectedly.

Residential Rental Property

A type of rented real property, such as a house or apartment complex.

Retail Investors

Also known as an individual investors or small investors are investors that buy and sell investment assets for their personal account. Retail investors are defined in opposition to institutional investors. Retail investors generally invest at significantly lower amounts than institutional investors.

Return On Investment (ROI)

Measures how much money or net profit is made on an investment, displayed as a percentage of the cost of that investment.

Reverse Exchange

A tax deferment strategy that allows real estate investors to purchase a second investment property before selling their relinquished investment property—and importantly, defer capital gains taxes and other taxes that you would normally need to pay upon sale of a property.

Reverse Mortgage

A financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income.

RevPAR (Revenue Per Available Room)

Total room revenue for the period divided by the average number of available rooms in a hospitality facility.

Rural Housing Service

USDA’s multifamily housing programs that offers loans to provide affordable rental housing for very low-, low-, and moderate-income residents, the elderly, and persons with disabilities

S

Sales and Purchase Agreement (SPA)

A legal contract that obligates a buyer to buy and a seller to sell a product or service. SPAs are found in all types of businesses but are most often associated with real estate deals as a way of finalizing the interests of both parties before closing the deal.

Second-Generation or Secondary Space

Previously occupied space that becomes available for lease, either directly from the landlord or as sublease space.

Section 8

Privately owned rental dwelling units participating in the low-income rental assistance program created by 1974 amendments to Section 8 of the 1937 Housing Act.

Security Deposit

Cash payment required by landlord to be held during the term of the lease to offset damages incurred due to actions of the tenant.

Self-Directed IRA Investing (SDIRA)

SDIRA Investing is using your IRA or retirement account to invest in real estate. Any returns generated from the investment property are tax-deferred and must be deposited back into the IRA. These funds cannot be withdrawn prior to retirement.

Seller-Financed Sale

A loan provided by the seller of a property or business to the purchaser. See Owner Financing.

Seller-Paid Points

Or seller contributions, are lump sum payments (or finance charges) made by the seller to the buyer’s lender to reduce the cost of the loan to the buyer.

Single-Family Home (SFH)

The most common type of rental property for real estate investors. An SFH is a free-standing house that is different from a townhome or apartment because it does not share walls or utilities with a neighboring property, and is located on its own parcel of land.

Shared Equity Finance Agreements

A financial agreement entered into by two parties who would like to purchase a piece of real estate together.

Short Refinance

A transaction in which a lender agrees to refinance a borrower’s home for the current market value, in effect making it more cost effective for the borrower.

Short Sale

A sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property.

Short-Term Rental

A type of rental property only leased for a short period of time, usually for vacationers, that comes furnished; property owners commonly use online marketplace services like Airbnb and VBRO to find renters

Squatter

A person who unlawfully occupies an uninhabited building or unused land.

Step-Up Lease (Graded Lease)

A lease specifying set increases in rent at set intervals during the term of the lease.

Straight Lease (Flat Lease)

A lease specifying a fixed amount of rent that is to be paid periodically, typically monthly, during the entire term of the lease.

Subcontractor

A contractor working under and being paid by the general contractor, often a specialist in nature, such as an electrical contractor, cement contractor, etc.

Subject To

buyer takes title to mortgaged real property but is not personally liable for the payment of the amount due, buyer must make payments in order to keep the property.

Sublease

Lease from one tenant (lessee) to another (called subtenant or sublessee). The agreement between the landlord (the lessor) and the first lessee remains in force and governs the terms of the sublease.

Syndications

Real estate syndication is an effective way for investors to pool their financial and intellectual resources to invest in properties and projects much bigger than they could afford or manage on their own.

T

Tax Lien

The government’s claim on your property and is generally placed when a taxpayer, such as a business or individual, fails to pay taxes owed.

Tenancy In Common

A specific type of concurrent, or simultaneous, ownership of real property by two or more parties. All tenants in common hold an individual, undivided ownership interest in the property. This means that each party has the right to alienate or transfer their ownership interest.

Tenant (Lessee)

One who rents real estate from another and holds an estate by virtue of a lease.

Tenant At Will

One who holds possession of premises by permission of the owner or landlord. The characteristics of the lease are an uncertain duration and the right of either party to terminate on proper notice.

Tenant Screening

The process of interviewing and vetting candidates for a rental unit in order to find the best possible tenant. Screening activities include running background and credit checks, as well as calling references.

Tenants By Entirety (TBE)

A method in some states by which married couples can hold the title to a property. In order for one spouse to modify his or her interest in the property in any way, the consent of both spouses is required by tenants by entirety.

Tenement

Also called tenement house, a run-down and often overcrowded apartment house, especially in a poor section of a large city. By law, any species of permanent property, as lands, houses, rents, an office, or a franchise, that may be held of another.

Timeshare

Sometimes called vacation ownership, is a property with a divided form of ownership or use rights. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each owner of the same accommodation is allotted a period of time.

Title

In property law, a title is a bundle of rights in a piece of property in which a party may own either a legal interest or equitable interest.

Title Commitment

The title company’s promise to issue a title insurance policy for the property after closing. The title commitment contains the same terms, conditions, and exclusions that will be in the actual insurance policy.

Title Defect

Any potential threat to the current owner’s full right or claim to sell a property. The property has a publicly-recorded issue, like a lien, mortgage, or judgment, that gives another party a claim to the property.

Title Insurance

Every title insurance policy covers either a homeowner or the lender that financed the mortgage for the property. Lenders require you to pay for lender’s title insurance as part of your mortgage closing costs. Homeowner’s title insurance is mostly optional and is paid for by the seller or the buyer of the property.

Title Search

Done to verify the seller’s right to transfer ownership. It is used to discover any claims, errors, assessments, debts, or other restrictions on the property.

Total Acres

All land area contained within a real estate investment.

Total Inventory

The total square footage of a type of property within a geographical area, whether vacant or occupied.

Triple Net Lease (NNN)

A lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property including real estate taxes, building insurance, and maintenance.

Trust

An arrangement whereby property is transferred to a trusted third party trustee by a grantor/trustor, trustee holds the property for the benefit of the beneficiary.

Truth In Lending Act (TILA)

A federal law passed in 1968 to ensure that consumers are treated fairly by businesses in the lending marketplace and are informed about the true cost of credit.

Turnkey Property

A fully renovated home or apartment building that an investor can purchase and immediately rent out.

U

Under Contract

In real estate, being “under contract” means that a buyer’s offer has been accepted by the seller.

Underwriter

In real estate, underwriting is when an individual or business entity seeks funding for a real estate project or purchase and the loan request is scrutinized to determine how much risk the lender is willing to accept. This procedure is performed by an underwriter.

Unencumbered

Property that is free of liens and other encumbrances.

Unimproved land

Most commonly refers to land without improvements or buildings but also can mean land in its natural state.

Unsecured Loan

A loan that is issued and supported only by the borrower’s creditworthiness, rather than by any type of collateral.

Use and Occupancy (U&O)

Refers to a type of permit required by some local governments whenever real property is transferred.

V

Vacancy Provision

The money that investors set aside to prepare for future vacancy is called a vacancy provision. It is a percentage of the monthly rent. The average vacancy provision is 6% for vacancy and 6% for maintenance.

Vacancy Rate

The ratio of rental units not rented versus the total number in the building.

Vacant Space

Existing tenant space currently being marketed for lease excluding space available for sublease.

Variable Rate Mortgage

Long-term mortgage loan applied to residences, under which the interest rate may be adjusted on a six month basis over the term of the loan, according to certain restrictions.

Variance

Permission that allows a property owner to depart from the literal requirements of a zoning ordinance that, because of special circumstances, cause a unique hardship.

Vendee

A buyer of real estate.

Vendee’s Lein

A lien against property under a contract of sale to secure the deposit paid by the purchaser.

Vendor

A seller of real estate.

Veneer

Wood or brick exterior that covers a less attractive and less expensive surface.

Voluntary Foreclosure

A foreclosure proceeding that is initiated by a borrower who is unable to continue making loan payments on a property in an attempt to avoid further payments and prevent involuntary foreclosure and eviction.

W

Waiver

The voluntary action of a person or party that removes that person’s or party’s right or particular ability in an agreement.

Warranty Deed

A property owner, when transferring the title, warrants that he or she owns the property free and clear of all liens. A warranty deed is used in most property sales. The warranty deed says that: The grantor is the rightful owner and has the right to transfer the title.

Warranty Of Title

A guarantee by a seller to a buyer that the seller has the right to transfer ownership and no one else has rights to the property.

Wholesale

To contract a property with the intention of reselling it quickly at a higher price.

Workout Agreement

A mutual agreement between a lender and borrower to renegotiate terms on a loan that is in default. Generally, the workout includes waiving any existing defaults and restructuring the loan’s terms and covenants.

Wraparound Mortgage

Loan arrangement in which an existing loan is retained and an additional loan is made that equals or exceeds the existing loan.

X

Y

Z

Zero Lot Line

A form of cluster housing development in which individual dwelling units are placed on separately platted lots, but are attached to each other.

Zoning

The division of a city or town into zones and the application of regulations having to do with the architectural design and structural and intended uses of buildings within such zones.

Zoning Ordinance

The set of laws and regulations controlling the use of land and construction of improvements in a given area or zone.

%

1031 Exchange

The IRS code’s Section 1031 makes it possible for a real estate investor to defer payment of capital gains taxes on an investment property upon its sale, as long as another “like kind” property is bought with the profit from the sale of the investment property.

1% rule

Refers to the rent to expense ratio an investment property must have in order to be profitable. While there are a number of expenses to keep in mind, the rent on an investment property must be at least 1% of the purchase price to have a positive ROI and be considered a favorable investment asset.

2% Rule

This is a general guideline many investors use to determine if a rental property is a good deal. The basics of the 2 percent rule say the monthly rent from a rental property should be 2 percent or more of the cost of a rental property.

50% Rule

One way to estimate what the expenses will be on rental properties. The 50 percent rule states that the expenses on a rental property will be 50 percent of the rents. The 50 percent rule does not account for any mortgage expenses.

70% Rule

A common term used among many real estate investors when flipping houses. The 70 percent rule is a way to determine what price to pay for a fix and flip to make money the rule states that an investor should pay 70 percent of the ARV (after repair value) of a property minus the repairs needed.

*Sources:

www.homeunion.com/real-estate-investing-glossary

www.realwealthnetwork.com/learn/real-estate-definitions/#145-return-on-investment-roi-

www.allpropertymanagement.com/blog/post/top-real-estate-investing-terms-and-definitions

reiclub.com/real-estate-terms/

irei.com/glossary/

www.fortunebuilders.com/real-estate-terms/